Construction costs increasing, outpacing inflation

A report released by property research group CoreLogic has shown that the costs associated with residential housing construction rose 1.1 per cent in the three months to September 2019.

The Cordell Housing Index Price (CHIP) report for October also revealed that construction costs for housing have grown 3.7 per cent year-on-year, far outpacing the rate of inflation, which currently sits at 1.7 per cent.

With the exception of the June quarter, which saw a reduction in national construction costs of 0.5 per cent, quarterly growth in building costs has been largely consistent over the year, according to CoreLogic.

The property research group stated that the national CHIP index first began to diverge from growth in consumer price index in 2003, and since then, inflation has averaged 0.6 per cent growth per quarter, whereas construction costs have grown 1.1 per cent per quarter on average.

CoreLogic outlined a number of market influences that have contributed to the figures. 

For example, employment has risen in the construction industry in recent months, with a 1.2 per cent increase recorded over the three months to August 2019.

In the last year, employment in the industry increased 0.5 per cent, and in the last five years, there has been a 14.1 per cent increase.

Further, new dwelling approvals continue to trend lower, down 19 per cent from last year, although stronger market conditions are likely to encourage residential construction, CoreLogic noted.

Australia’s largest residential property markets, NSW and Victoria, both saw quarterly growth in the cost associated with building work, rising by 1.2 per cent in the quarter ending September 2019.

This takes the year-on-year figures to be up 4.3 per cent in NSW and 3.9 per cent in Victoria.

Queensland has also seen significant yearly increases in construction costs, recording 3.4 per cent growth in the year to September 2019.

Western Australia and South Australia both recorded a drop in dwelling values in the three months to September 2019 but were not immune to increasing costs of construction, rising 0.8 per cent and 0.5 per cent, respectively, in the same period.

[Related: Rate cuts fuelling speedy housing recovery]